Australia has a prosperous, Western-style mixed economy, with a per capita GDP slightly higher than that of the UK, Germany, and France in terms of purchasing power parity. The country was ranked third in the United Nations' 2007 Human Development Index and sixth in The Economist worldwide quality-of-life index 2005. The absence of an export-oriented manufacturing industry has been considered a key weakness of the Australian economy. More recently, rising prices for Australia's commodity exports and increasing tourism have made this criticism less relevant. Nevertheless, Australia has the world's fourth largest current account deficit in absolute terms. This is considered problematic by some economists, especially as it has coincided with the high terms of trade and low interest rates that make the cost of servicing the foreign debt low.

The Government started the process of economic reform by floating the Australian dollar in 1983, and partially deregulating the financial system. The Government continued the process of microeconomic reform, including a partial deregulation of the labour market and the privatisation of state-owned businesses, most notably in the telecommunications industry. The indirect tax system was substantially reformed in July 2000 with the introduction of a 10% Goods and Services Tax (GST), which has slightly reduced the heavy reliance on personal and company income tax that characterises Australia's tax system.

The service sector of the economy, including tourism, education and financial services, constitutes 69% of GDP. Agriculture and natural resources constitute 3% and 5% of GDP but contribute substantially to export performance. Australia's largest export markets include Japan, China, the US, South Korea & New Zealand.